Some good and interesting posts have been made in the last couple of days on the Political Economics thread and we are blessed to have Canadian Tricky Dog chiming in. Lets continue that conversation here.

Not only are the Canadians our very good friends and neighbors, our cultures, our legal systems, and our political systems all originated principally in England. This seems to me to lessen the usual amount of static that comes from cross-cultural comparisons.

I would kick things off my challenging the oft-stated notion that Canada survived the bubble due to regulations they have that we do not.

While partially true (and I have begun to reconsider my inattention to our repeal of the Glass-Steagall Act sp?) I think this blurs a very important point-- that it was precisely the intervention of our government via the FMs guaranteeing loans, CRAP (Community Reinvestment Act Program which forced banks to lend to the unqualified in the name of racial parity of results) and the deranged interest rate policy of the Fed that created the bubble.

So regardless of whether you blame the government or the corporations for the American experience, you are essentially concluding from the Canadian experience that, in general, strong regulation is needed for financial services?

Thus the need is for better government, whether or not that means less government? Regulation necessarily means bureaucracy.

Or is there a free-market (i.e. unregulated) solution to keep banks from doing this again?

As mentioned in the previous thread (Political Economics), the Harper government in Canada just dropped corporate taxes by 1.5% to 15%. That will equate roughly to 33 billion annually given back to Canadian corporations.

Harper has recently been complaining about the 3/4 trillion sitting in corporate coffers stagnant - most enterprises sitting back during the rough economic times to hold onto their surpluses. This break will allow them to hold even more money stagnant.

The assumption seems to be that corporations are going to spend us out of tough times by growing, investing, and otherwise freeing up those stagnant funds. But that does not really seem to be happening. Like spooked consumers, they are sitting on the money to see how this plays out. Which of course just drags out the recovery.

In the case of consumers, you can sometimes get them to start spending even when they probably should remain cautious or work hard at reducing their debt. Corporations on the other hand are run by some of the most saavy financial types to be found. They know better than most when to move and when to sit still (although no guarantee of good sense). And you can expect corps to do what is best whether they get a tax break or not.

I can see the long term benefit of tax breaks - attracting more foreign business, encouraging investment and innovation, etc. But in a stale or limping economy where the future is uncertain, I do not see why this is a good move, at least in the short term. Why would corps start spending significantly under these circumstances? The only real use of corp reserves seems to be the usual M&A activity that accompanies a slow economy.

So is there any reasonable expectation that lowered corp taxes will help jump start an ailing economy?

No matter if it's the US, Canada or Hong Kong, I think there is a desire and need for some degree of regulation of financial markets. In designing systems that have a important role, it's important to structure the system so it fails gracefully rather than catastrophically. As business failure is a required element of a free market (creative destruction), it makes sense that there should not be such a thing as a business/bank "too big to fail".

At the same time, much like every complex system, there is a law of diminishing returns at work as well. While intelligent and properly enforced regulations are important, there comes a point where too much regulation does more harm than good.

So, it's a matter of finding the sweet spot between the extremes of structure and chaos.

"So regardless of whether you blame the government or the corporations for the American experience, you are essentially concluding from the Canadian experience that, in general, strong regulation is needed for financial services?"

Not necessarily. Although I am reconsidering the merits of the Glass Steagall Act, I submit that in the US the principal cause was the guarantee of the Federal govt, via Fannie Mae and Freddie Mack, of bad mortgages. With this, the discipline of the market was removed and reckless behavior thus enabled. This humongous error was dramatically multiplied by the intervention of the Fed with its low interest rates-- in post inflation, post tax dollars, interest rates have been essentially negative or zero for quite some time now. This punishes savers, encourages desperate and reckless investing, and accelerated the housing bubble. I would add that the Humphrey-Hawkins Act, which added full employment to the Fed's responsibility of price stability, another market meddling piece of Keynesian interventionist drivel, is also a major factor in the damage that the Fed causes.

"Thus the need is for better government, whether or not that means less government? Regulation necessarily means bureaucracy."

As I see it the issue is the concept by which the regulation is justified. If the regulation is to enforce transparency in mortgage language, that is in support of free market principles and as such is fine. If the regulation is to “encourage home ownership”, that is government intervention in the market and, as we see from the economic chaos that has ensued from such policies it is NOT fine.

"Or is there a free-market (i.e. unregulated) solution to keep banks from doing this again?"

The solution is to let failure fail, not to punish savers to benefit the banks and other friends of the Congress e.g. AIG.

"the issue is the concept by which the regulation is justified. If the regulation is to enforce transparency in mortgage language, that is in support of free market principles and as such is fine. If the regulation is to “encourage home ownership”, that is government intervention in the market and, as we see from the economic chaos that has ensued from such policies it is NOT fine."

Yes. The justification for bank regulation was - don't take bad risks because we insure your deposits. From there we jumped to encouraging home ownership above requiring creditworthiness based on a different justification for government action: 'Hey, we amassed all this power, let's do some good with it!'

"whether you blame the government or the corporations ... is there a free-market (i.e. unregulated) solution to keep banks from doing this again?"

Looking at it the other way, 'what can the people can do to keep their government regulators from doing this again'?

"As mentioned in the previous thread (Political Economics), the Harper government in Canada just dropped corporate taxes by 1.5% to 15%. That will equate roughly to 33 billion annually given back to Canadian corporations."

TD, do you intend to say there will be no recovery of the lost revenues from new revenues generated? Corporate income is a fixed number? I disagree. Let's see in a year.

"33 billion annually given back to Canadian corporations"

A funny way of looking at it. Even at a lower rate, the who is giving to whom seems backwards. Not that corporations give freely, but govt is now taking at a slightly lower rate. When a retailers lowers their price do they assume the same amount of transactions? If so why do they do it? Assuming corporations are in the business of making money, why would they not use that 'gift' to make more money, build, buy, hire, expand which all lead to a host of other taxes to be paid including more corporate income tax. If they will not use the money for those purposes, why not?

"the issue is the concept by which the regulation is justified. If the regulation is to enforce transparency in mortgage language, that is in support of free market principles and as such is fine. If the regulation is to “encourage home ownership”, that is government intervention in the market and, as we see from the economic chaos that has ensued from such policies it is NOT fine."

I agree, the government has no business being in the business of encouraging home ownership. Doug, are you therefore saying that the mortgage deduction (government intervention) should be immediately repealed? It would seem that this very costly benefit has no purpose other than to "encourage home ownership".

Note, personal home mortgage payments are not deductible in Canada, yet home prices and banks seem to do just fine.

China's Canadian Energy Play Alberta's oil sands will be developed, no matter what U.S. greens say..

President Obama may not want to exploit the energy buried in Canada's Alberta oil sands, but China sure does. Think of Monday's $15.1 billion offer by China's state-owned Cnooc to buy Canadian energy giant Nexen as a post-Keystone XL Pipeline bid to replace the U.S. as Canada's biggest energy investor and market.

Nexen offers Cnooc a sweeping North American energy footprint, with assets from heavy oil and shale gas in Alberta to offshore leases in the Gulf of Mexico. Part of the bet is also on Canadian politics, which could block the investment on nationalist grounds but which so far hasn't been captured by the anticarbon fevers that dominate Washington.

Canada seems to understand that its resources are a gift that can raise national prosperity. And as extraction technology has improved, Canada's proven oil reserves have climbed to at least 180 billion barrels, putting it behind only Saudi Arabia and Venezuela.

Unlike the U.S., Ottawa cedes most energy decisions to the provinces, which have encouraged production. A decade ago Alberta reduced to 1% the royalty that companies must pay until they have earned back their capital costs; then the rate reverts to 25%. The incentive kick-started the oil sands investment boom.

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A Nexen oil sands facility near Fort McMurray, Alberta, Canada..Canada is also looking for oil from shale, drilling in the Arctic, and even producing in the Atlantic—offshore of Nova Scotia, within spitting distance of Maine. All of this has produced a gusher of oil, tax revenue and jobs. The oil sands alone are estimated to have accounted for one-third of Canada's economic growth in 2010 and 2011, according to Canada's national statistical agency.

Contrast that to the U.S., where President Obama has spent tens of billions on failed green energy schemes while making fossil-fuel exploration harder. This week the White House issued a veto threat against a House bill that would restore pre-Obama plans to allow greater offshore exploration. Alaska oil production is so low that there are worries about the viability of its pipeline. Shell Oil, which has plowed $4.5 billion into an Arctic investment, has been waiting the entire Obama Presidency for permits. The EPA is also waiting for a second term to impose national regulations on shale fracking.

Mr. Obama's rejection of the $7 billion Keystone XL has no doubt concentrated Chinese and Canadian minds. The pipeline would have moved oil from Canada and North Dakota to refineries on the Gulf Coast, and Mr. Obama's bow to American greens was a direct snub to Canada, which provides nearly 30% of U.S. imports. Prime Minister Stephen Harper promptly said that Canada needs to diversify its energy markets, perhaps by building a pipeline from Alberta to the West Coast to export to Asia.

Energy-hungry China couldn't be happier. Chinese bids for North American companies haven't always been welcomed—see the rejection last year of a Chinese consortium's $38.6 billion hostile bid for Canada's Potash Corp. But Cnooc executives might figure that Canadian regulators will be more welcoming to this nonhostile bid in the wake of the Keystone fiasco. Canada needs capital to exploit the oil sands and the markets to buy what is produced. Cnooc can help with both.

The lesson for America, and especially Democrats, is that Canada's oil sands will be developed, whether their green financiers like it or not. If the U.S. doesn't want the oil, China and the rest of Asia will gladly take it. The world wants to grow—must grow to reduce poverty—and it needs abundant, cheap energy to do it. Why is that so hard for some Americans to understand?

O'Grady: How Canada Saved Its Bacon Deep cuts in government spending pulled Canada back from an epic fiscal crisis in the 1990s.By MARY ANASTASIA O'GRADY..

Former Canadian Prime Minister Paul Martin has a stern warning for the U.S. political class: Get real about the gap between federal revenues and spending, or get ready for disaster.

Mr. Martin knows of what he speaks. In 1993, when he was Canada's finance minister, his country faced a daunting fiscal crisis. It wasn't Greece, but by 1994 Canada's federal debt-to-GDP ratio was getting close to 80%, and the cost of servicing the debt had begun to eat up an incredible one-third of government revenue.

The central lesson from that crisis, Mr. Martin told an American Enterprise Institute audience in Washington last week, is that delay only ensures that the inevitable adjustment will be more painful.

Truer words were never spoken. Nor has it ever been more likely that they will fall on deaf ears, at least as long as Federal Reserve Chairman Ben Bernanke keeps financing the partying in our nation's capital.

When the Liberal Party government of Prime Minister Jean Chrétien took power in October 1993, Mr. Martin was charged with pulling his nation out of the fiscal death spiral. He did it with deep cuts in federal spending over two years that amounted to 10% of the budget, excluding interest costs.

Nothing was spared. Even federal transfers to the provinces to fund Canada's sacred national health-care system got hit. The federal government also cut and block-granted money for welfare programs to the provinces, giving them almost full control over how the money would be spent.

In the 1997 election, the Liberals increased their majority in parliament. The Chrétien government followed with tax cuts starting in 1998 and one of the largest tax cuts—both corporate and personal—in the history of the country in 2000. The Liberals won again in 2000.

What drove the left-of-center Liberals to shoulder the burden of downsizing government in the 1994 and 1995 budgets—Mr. Martin takes great pains to point out—was not ideology but "arithmetic." That is to say that everyone recognized that the magnitude of the debt, and the cost of servicing it, was unsustainable.

The problem had been building over many years. In 1965, federal spending had been 15% of GDP. By 1993 it was 23%. Markets didn't like it. Between February and March of 1994, the three-month Canadian Treasury bill rate went to 5.82% from 3.85%. The Mexican peso crisis in December of that year didn't help. By February 1995 the interest rate on the Canadian Treasury bill reached 7.8%. In a world of increasing uncertainty and a flight to quality, Canada was paying dearly for its deteriorating risk profile. As the exchange rate sank, Canadians were getting poorer and the government was speeding toward a wall.

Another speaker at the American Enterprise Institute conference (which was co-sponsored by the Ottawa-based MacDonald-Laurier Institute) was Janice McKinnon, the finance minister for the center-left New Democratic Party government of the province of Saskatchewan in 1993. Ms. McKinnon told her own war stories.

In 1991, when her government took over, the "province was on its knees." In 1992, according to Ms. McKinnon, Standard & Poor's reported that Saskatchewan's "tax-supported debt was 180% of its annual revenue." "When our credit rating dropped to triple B rating, we had trouble borrowing money."

Ms. McKinnon described some of what followed: "In one budget we closed 52 hospitals, many schools and thousands of people lost their jobs. But we knew we had no choice, and we couldn't look back."

Ms. McKinnon likened the U.S. today to Saskatchewan in the 1980s. You are "not to the point where you are in a crisis, people aren't saying 'maybe we won't lend you money.' " And that means that the politicians can still put things off. "Before you actually realize 'we've got to do this because there is no choice,' there is a lot of denial," Ms. McKinnon explained. "I think you're at that stage."

She's right. Market discipline doesn't exist in Washington, which has the "privilege" of an accommodating central bank issuing the world's reserve currency. The big spenders don't need to pay attention to pesky numbers. As Stanford University economist John Taylor has noted, the Fed bought 77% of all new federal debt last year. It is doing so at rock-bottom interest rates. By holding the short-term fed-funds rate low while it buys up long-term securities, Mr. Bernanke is helping our political class ignore the real cost of rising federal indebtedness.

Of course these battle-scarred Canadians fully understand that the U.S. will reach a day of reckoning when the Fed has to constrain the money supply and interest rates start going up. "Our only plea," Ms. McKinnon said, "is that if you start tackling it before you hit the crisis stage, it's going to be a heck of lot easier. The longer you wait, the worse it gets."

"To achieve this the Harper government did something you might more expect to see in the private sector. Clement made history in Canada by tying bonuses of senior bureaucrats to the success of government-wide objectives for reducing expenditures. Get this, about 40% of the bureaucrats’ bonuses were linked to a “Deficit Reduction Action Plan.” Yeah, bureaucrats got bigger bonuses when they proposed ways to make bigger cuts.Clement explained, “Forty percent of this at-risk pay for senior managers was based on how much they contributed to the target of least $4 billion a year in permanent savings. This is just part of how we’re changing the attitude of government officials from spending enablers to cost containers.”

AT a time when territorial disputes over uninhabited outcrops in the East China Sea have led to smashed cars and skulls in China, a similar, if less dramatic, dispute over two remote rocks in the Gulf of Maine smolders between the United States and Canada.

Machias Seal Island and nearby North Rock are the only pieces of land that the two countries both claim after more than 230 years of vigorous and sometimes violent border-making between them.

Except for the occasional jousting of lobster boats, this boundary dispute floats far below the surface of public or official attention, no doubt reflecting the apparent lack of valuable natural resources and a reluctance to cede territory, no matter how small.

But if we are unlikely to resort to arms anytime soon, the clashes in Asia have shown how seemingly minor border disputes can suddenly stoke regional and nationalistic tensions. Our relaxed attitude toward these remote rocks may well be a mistake.

While the United States and Canada have other maritime boundary disputes along their 5,525-mile border, the world’s longest, this is the only one left that involves actual chunks of land.

Machias Seal Island is a 20-acre, treeless lump that sits nearly equidistant from Maine and New Brunswick. It, and the even smaller North Rock, lie in what local lobstermen call the gray zone, a 277-square-mile area of overlapping American and Canadian maritime claims.

The disagreement dates back to the 1783 Treaty of Paris that ended the Revolutionary War. The treaty assigned to the newly independent 13 colonies all islands within 20 leagues — about 70 miles — of the American shore. Since Machias Seal Island sits less than 10 miles from Maine, the American position has been that it is clearly United States soil.

But the treaty also excluded any island that had ever been part of Nova Scotia, and Canadians have pointed to a 17th-century British land grant they say proves the island was indeed part of that province, whose western portion became New Brunswick in the late 18th century.

Perhaps more important to the Canadian case, the British built a lighthouse on Machias Seal Island in 1832, which has been staffed ever since. Even today, two lighthouse keepers are regularly flown to the island by helicopter for 28-day shifts to operate a light — even though, like every other lighthouse in Canada, it is automated.

While abundant legal arguments surround Machias Seal Island, natural resources are far less evident. No oil or natural gas has been discovered in the area, nor has it had any strategic significance since it served as a lookout for German U-boats during World War I.

Tour boats from Maine and New Brunswick carry strictly limited numbers of bird watchers to the island to see nesting Atlantic puffins. And the surrounding waters contain lobsters that, thanks to different regulatory schemes and overlapping claims, have occasionally sparked clashes between Maine and New Brunswick lobstermen, although a bumper lobster crop this summer has slackened demand for gray zone crustaceans.

But the lack of hydrocarbons and the current lobster glut make this an ideal time to color in the gray zone.

The United States and Canada settled all their other maritime differences in the Gulf of Maine in 1984 by submitting their claims to the International Court of Justice for arbitration. They could have included the gray zone in that case, but did not. The Canadians had refused an earlier American arbitration proposal by saying their case was so strong that agreeing to arbitration would bring their title into question.

This attitude calls for re-examination. The fact that so little in the way of resources appears to be at stake, far from justifying the status quo, should be the main reason for resolving the issue. And for those concerned about blowback from “giving away” territory, letting the international court decide the case provides the most political cover.

As China and Japan can attest, border disputes do not go away; they fester. And when other factors push them back to the surface — the discovery of valuable resources, an assertion of national pride, a mishap at sea — the stakes can suddenly rise to a point where easy solutions become impossible.

Before that happens, we should put this last land dispute behind us, and earn our reputation for running the longest peaceful border in the world.

Stephen R. Kelly is the associate director of the Center for Canadian Studies at Duke University and a retired American diplomat who served twice in Canada.

John Sheardown, Canadian Who Sheltered Americans in Tehran, Dies at 88

By DOUGLAS MARTIN Published: January 4, 2013 NYT

When militant radicals seized the United States Embassy in Iran in November 1979, they intended to take all its employees hostage. But five were elsewhere in the embassy compound and escaped capture. After six tense days of furtively moving around Tehran, one of them, Robert Anders, placed a call to a Canadian diplomat with whom he played tennis, and asked for help.

“Hell, yes, of course,” the diplomat, John Sheardown, answered. “Count on us.”

The five employees had by then been joined by a sixth. Four ended up being hidden for nearly three months in the home of Mr. Sheardown, the Canadian Embassy’s No. 2 official, who died on Sunday at 88. The other two found refuge with the Canadian ambassador, Ken Taylor.

The episode, which came to be known as the “Canadian caper,” was a footnote to the Iranian hostage crisis, in which young Iranian revolutionaries seized the American Embassy and held 52 people hostage for 444 days to try to force the United States to return the deposed shah from New York, where he was being treated for cancer. After the shah died in July 1980 in Egypt and war erupted between Iran and Iraq, negotiations with the United States led to the release of the hostages in January 1981.

The concealment and extrication of the American diplomats by the Canadian government and the Central Intelligence Agency inspired the recent movie “Argo.” Though Mr. Sheardown is not mentioned in it — public recognition always gravitated to Mr. Taylor, who is portrayed in the film as a hero — his role was nevertheless consequential.

“Without his enthusiastic welcome, we might have tried to survive on our own a few more days,” Mark Lijek, a retired Foreign Service officer, wrote in Slate last year. “We would have failed.”

Mr. Sheardown’s avuncular, pipe-puffing manner led his houseguests to call him Big Daddy. He bought groceries at different stores to disguise his household’s suddenly larger appetite. He bribed the garbage collector with money and beer for the same reason. Surveillance, including tanks at the end of the street, was constant. Strangers knocked on the front door, suspicious calls were commonplace, their car was repeatedly searched.

“We were already living in danger,” Mr. Sheardown’s wife, Zena, said in an interview on Wednesday. “And certainly the danger was compounded because we were hiding, literally hiding, fugitives.”

Mr. Sheardown, she said, died in Ottawa, where he lived, after being treated for Alzheimer’s disease and other ailments.

John Vernon Sheardown was born on Oct. 11, 1924, in Sandwich, Ontario, a small town absorbed by Windsor in the 1930s. At 18, he joined the Canadian Air Force and flew a bomber in World War II, once crash-landing near an English village after limping back from an attack on Germany. He broke both legs, but was able to crawl to a pub door at 3 a.m. and rouse the owner. He asked for a glass of Scotch, which the owner gave him. The owner then asked for payment while Mr. Sheardown waited for an ambulance — a story Mr. Sheardown relished.

He joined Canada’s immigration service in the early 1960s and later transferred to the foreign service, where he specialized in immigration matters. He was busy in Tehran with Iranians who wanted to leave the country, as well as with Afghans who had fled their country after the Soviet Union invaded it in December 1979. His houseguests became an official part of his responsibilities after the Canadian Parliament held its first secret session since World War II to approve the rescue mission, which included issuing the Americans fake Canadian passports.

While in Tehran, the Americans in his rented 20-room house occupied themselves by listening to news on a shortwave radio, reading, playing Scrabble and cards and, by their own admission, drinking copiously. They had to leave the house only once, when the owner had a real estate agent show it to a potential buyer. The two Americans staying with Ambassador Taylor were spirited to the Sheardown house for Thanksgiving and Christmas.

The diplomats posed as members of a film crew who had supposedly been scouting locations. They had been taught how to speak like Canadians — for instance, by ending sentences with “eh?” One was given a Molson beer key ring.

Mr. Sheardown’s first marriage, to Kathleen Benson, ended in divorce. Besides his wife, the former Zena Khan, he is survived by his sons, Robin and John; his sisters, Jean Fitzsimmons and Betty Ann Whitehead; six grandchildren; and 10 great-grandchildren.

After being awarded a high honor, the Order of Canada, Mr. Sheardown fought for his wife, a British citizen, to receive the same award. She had been legally excluded from consideration because she had never lived in Canada. He argued that she had had the tougher job because she seldom left the house while living in danger. She received the honor in 1981.

After “Argo” appeared in theaters, Ms. Sheardown said, its director, Ben Affleck, called to apologize for leaving her and her husband out of the movie. In an interview on Thursday, Mr. Affleck said he had been fully aware of the Sheardowns’ heroism before the film was shot, but had reluctantly omitted it for reasons of length, drama and cost.

Is Canada Now More American than America? Canada’s Burger King secret: Hold the taxes, hold the regulations. By John Fund

The merger of U.S. hamburger giant Burger King with Tim Hortons, Canada’s favorite coffee shop, will create the world’s third largest fast-food company, with a total of 18,000 restaurants in over 100 countries. It is also a piercing wake-up call for the U.S., because the new company will make its global headquarters in Canada’s province of Ontario. That underscores what savvy businesses everywhere have learned — the U.S. is an increasingly less attractive place to do business. “Canada has quietly and politely become, well, more American than America,” says columnist Stephen Green.

Since 2003, more than 35 major U.S. companies have moved their headquarters and reincorporated overseas. Rather than rail against such “inversions,” as President Obama does, or call for an economic boycott, as Ohio’s Democratic senator Sherrod Brown does, we should figure out what is driving U.S. companies offshore. Here’s a clue: The U.S. now has the highest corporate tax rate of any industrialized country, and the Wall Street Journal reports that the Obama administration is “even now looking for ways it can unilaterally raise corporate taxes without going to Congress.”

Canada has long been our more socialist and, consequently, our poorer neighbor to the north. But that has changed over the last two decades. Starting in 1995, Canada has drawn back from a public-debt precipice, restrained government spending, and dramatically overhauled its tax system. Next year it will also begin unilaterally reducing tariffs on thousands of manufactured goods — recognizing that free trade makes for wealthier consumers and a more prosperous society.The results have been dramatic. This year, Canada has a higher per capita household income than the U.S., an unheard-of development that no one saw coming. It ranks eightth in the annual Economic Freedom of the World index (freetheworld.com) that the Fraser Institute compiles for over 150 countries, with especially strong marks in property rights and business freedom. By comparison, the U.S. ranks a pathetic 17th and is now categorized as only “mostly free.” “Unfortunately for the United States, we’ve seen overspending, weakening rule of law, and regulatory overkill on the part of the U.S. government, causing its economic freedom score to plummet in recent years,” said Fred McMahon of the Fraser Institute. “This is a stark contrast from 2000, when the U.S. was considered one of the most economically free nations and ranked second globally.”

While the U.S. eagle has plummeted in terms of economic freedom, the Canadian maple leaf has prospered. The consulting firm of KPMG looked at the tax costs of doing business in ten major nations. Setting the U.S. tax rate at a benchmark score of 100, it found that Canada’s costs were the lowest, 46.4 percentage points lower than the U.S. The United Kingdom, Mexico, and the Netherlands also beat out the U.S.

Canada’s strategy of lowering tax burdens on business was a conscious one, begun under the Liberal government of Paul Martin and accelerated since 2006 by the Conservative government of Stephen Harper. The late Jim Flaherty, who served as Harper’s finance minister until March of this year, told me last year that the essence of smart taxation is “to raise the resources needed for prudent government while creating an environment where the private sector is encouraged to create the longer-lasting jobs a country needs to prosper.” He concluded that “if you can give people enough upward opportunity for average people, the talk will be on creating more of it rather than on redistributing a shrinking pie.”

Among the innovations that Flaherty introduced was the Tax Free Savings Account, which allows Canadians to save more by setting aside money tax-free if it’s invested. Combined with the already established Registered Retirement Savings Plan, which is focused on building retirement income, Canadians now have more tax-free savings vehicles to help them remain independent over their lifespan than any people outside of Chile, which privatized its Social Security system in the 1980s.

No one suggests that Canada is a pure beacon of freedom. Harper’s Conservatives have a majority of seats in Parliament, but just shy of 50 percent of Canadians in the last election, in 2011, cast ballots for either the Liberals or New Democrats, both interventionist purveyors of big government. Canada’s single-payer health system delivers less innovation and longer waiting lists than Americans would be likely to tolerate, and many of Canada’s provinces are once again piling up debt and overspending.

But Canada proves that a country can climb out of a deep fiscal hole within a remarkably small number of years and build a prosperous society even while it retains large welfare-state programs.

That is a lesson for U.S. Democrats, who, rather than rail against Burger King’s lack of economic patriotism, should learn how Canada has avoided America’s economic stagnation. It’s also a lesson for Republicans, who often lack the courage of their convictions in calling for genuine economic reform. Canada’s economic example — and the political success of Harper’s Conservatives in winning three elections in a row — should stiffen their spines.